Concerned Shareholder Calls for Immediate Change at HEXO Corp. to Reverse Massive Share Destruction
Shareholder Adam Arviv to nominate five new independent directors to replace entrenched legacy Board
TORONTO, Feb. 2, 2022 /CNW/ – Concerned Shareholder, Adam Arviv, through his fund KAOS Capital Ltd. (the “Concerned Shareholder” or “Arviv”), announces today that he plans to nominate five new independent directors at HEXO Corp. (“HEXO” or the “Company”) with a goal of replacing the majority of the currently entrenched legacy HEXO Board members and turning around the underachieving Company’s disappointing performance.
Arviv, who currently owns an approximate 2% stake in HEXO, has been waging a battle with management at the cannabis company over the past months, since the Company’s August 2021 acquisition of Licensed Producer, Redecan. Arviv alleges that former Chair Dr. Michael Munzar and former CEO Sebastien St-Louis deceived the Redecan group of investors and destroyed shareholder value by completing a number of destructive financings and that the incumbent Board of Directors, led by current Board Chair John Bell and Director Vincent Chiara, was grossly remiss in approving these transactions.
Arviv also alleges that the HEXO management and Board were fully aware the Redecan group of investors was primarily comprised of First Nations individuals and supporters of First Nations groups, who, trusting in the professional management of the publicly-listed HEXO, invested their savings into this stock. This was the first foray into the capital markets for many of these First Nations individuals, who have now lost significant net worth and feel betrayed by the mismanagement of the Company.
As of the date of this letter, HEXO common shares (“Shares”) are trading at a 52-week low of C$0.58, down from a high of C$14.00, within the span of one year. The departure of Mr. St-Louis with immediate effect on October 18, 2021, was not sufficient to halt the precipitous slide in Share value, with HEXO Shares plummeting more than 50 percent since that day. Even the lift in Canadian cannabis stock performance this week has had little effect on the feeble HEXO Share value.
The incumbent Board has demonstrated a notable lack of understanding of capital markets, as evidenced by a number of key missteps and errors over the past months:
- During the May 2021 raise of US$359 million as a senior secured convertible note to fund the Redecan acquisition, management and the Board concurrently ran an At-The-Market financing – the combination of the two led to an ever-increasing number of shares and a precipitous decline in the Share price.
- Just days before closing the Redecan transaction in August 2021, management and the Board undertook a subsequent US$145 million underwritten public offering, attaching a half warrant priced at US$3.45. This is further evidence of the Company’s lack of disciplined capital market stewardship. The discounted financing and attached warrant all but guaranteed an incremental decline in the Share price of the Company.
- As would be expected, when this financing was announced on August 19, 2021, the Share price declined 28 percent overnight, bringing the already beaten share price to a new 52-week low. HEXO now faces going-concern risk as highlighted by the Company’s most recent audited financial statements.
- The Board continued to move forward with the pursuit of distressed issuers by leveraging HEXO, which not only further diluted HEXO’s shareholders (“Shareholders”) but required continuous and increasing cash infusions to stay afloat.
- In consequence, HEXO is in severe financial distress and is on track to run short of capital to run day-to-day operations. The Selling, General, and Administrative expenses at the Company are alarming and exceed revenue, a clear indication that the Company is on a path to bankruptcy or at the very least, the impetus for another value-crashing financing.
This has to stop. The market has spoken loudly and HEXO shareholders have made it clear that they have no confidence in the direction of the Company and in the ability of the incumbent Board to right the ship and reverse the downward slide. Without monumental change, HEXO Shares will continue their unrelenting descent.
Shareholders of HEXO deserve leadership that can deliver a tangible future. Despite the necessary removal of Mr. St-Louis, it is very clear that to reverse course, the majority of the Board needs to be replaced with new, independent Directors who have the experience and expertise to successfully navigate back to exceptional performance. Only in this way will we unlock the massive Shareholder value that is trapped in HEXO.
Arviv will submit the names of five independent nominees to replace the majority of the incumbent Board members at the upcoming annual and special meeting of shareholders (the “Meeting”) scheduled for March 8, 2022. Arviv believes he will have significant support from Shareholders. Subsequent to winning the shareholder vote, the new Board will immediately establish an Independent Special Committee to evaluate all paths to effecting a positive resolution for all stakeholders.
The five new, highly qualified and independent director nominees (the “Nominees”) are as follows:
Adam Arviv
Adam Arviv is currently the Chief Executive Officer of KAOS Capital Ltd. and a Strategic Advisor for ORYX Gaming. Previously, Mr. Arviv served as the Founder, Chief Executive Officer and a director of Bragg Gaming Group Inc., a publicly-traded company on the TSX, and President of Will-Power Management Inc. He was also the co-founder of Gaming Nation Inc., Green Growth Brands and the BRN Group. Mr. Arviv also serves as a Chairman on a number of boards, including, GhostRetail, the BRN Group, and Legacy Eight Gaming. Mr. Arviv holds a Bachelor of Economics from The University of Western Ontario.
Mark Attanasio
Mark Attanasio is currently a director of Nocera Investment Corp, a private investment fund focused on high growth venture companies. Mr. Attanasio also serves a director of GhostRetail. Mr. Attanasio began his career as a Chartered Accountant and spent four years at PricewaterhouseCoopers LLP in Audit and Advisory Services. He spent 11 years at National Bank Financial, starting in the M&A group, then serving four years as Director of Global Equity Derivatives, where he managed a proprietary trading portfolio of bank capital. In 2014, he was hired by Dundee Corporation as Executive Vice President, Merchant Banking, overseeing a portfolio of investments in multiple sectors. From there, he was appointed President of Dundee Capital Markets, where he managed all aspects of the capital markets business. Mark then led a management buyout of Dundee Capital Markets and became co-founder and CEO of Eight Capital, formerly known as Dundee Capital Markets. Mark Attanasio graduated from the University of British Columbia with a Bachelor’s degree in Science. He holds the CA and CPA accountancy designations.
Craig Bromell
Craig Bromell currently serves as the President of The Building Union of Canada, a construction union. Mr. Bromell previously served as Chief of Security & Intelligence at 3 Sixty Risk Solutions Ltd., a security service provider to the cannabis sector. Prior to these roles, Mr. Bromell served the Toronto Police Service for 26 years, which included six years as Chief Steward 51 Division and six years as President of the 7,500 member Toronto Police Association. During more than a quarter century of service Bromell also became the Director of the National Association Professional Police (17,000 members) and Director of the Canadian Police Association (25,000 members). As Toronto Police Association President, Bromell negotiated three bargaining contracts for his 7,500 members totaling 24% in raises with dramatic improvements to pension and medical packages. After his retirement Bromell was inducted into the Canadian Police Association’s Hall of Honour, a prestigious honour shared with only a select number of other Veterans of Law Enforcement.
Rob Godfrey
Rob Godfrey is currently the President of Brown Lab Industries Inc., a consulting and property management company, and the President and CEO of Vector Health Labs, a laboratory services company. Mr. Godfrey also serves as a director of Bragg Gaming Group Inc., a publicly-traded company on the TSX and as Chairman of Kings Entertainment Group Inc., a publicly-traded company on the CSE. Mr. Godfrey oversees two portfolio companies: Qwatro USA and UrbanDog Holdings. In addition, Mr. Godfrey is active in Brown Lab’s real estate activities including the management of commercial and industrial properties in Ajax, Etobicoke and Toronto. Mr. Godfrey’s previous work experience includes Senior Vice President of the Toronto Blue Jays Baseball Club, President of the Toronto Phantoms Arena Football Team and Associate at TD Securities. Mr. Godfrey holds a BA from the University of Western Ontario, and a JD/MBA from Pepperdine University in California.
Aidan Rasalingam
Aidan Rasalingam currently serves as the Executive Vice President of Retail at Canyon Cannabis, a licensed cannabis retailer in Ontario. Aidan understands the role of government in regulated industry with knowledge gained working in the offices of senior parliamentarians in Ottawa. He has also worked with a government relations firm in licencing of Cannabis facilities and brings an expertise on the interplay between federal and provincial regulations on consumer issues. During his tenure in government affairs, he has also worked with multi stakeholder groups on industry issues.
The Concerned Shareholder reserves its right to nominate additional directors in accordance with applicable securities and corporate law.
The following table contains information regarding each proposed Nominee’s name, age, province and country of residence, present occupation and principal occupations for the preceding five years, and the number of Shares of the Company beneficially owned, or controlled or directed, directly or indirectly, by such Nominee:
Additional Information Concerning the Nominees
Based on information provided by each respective Nominee, none of the Nominees: (a) is, at the date of this release, or has been within the previous 10 years, a director, chief executive officer or chief financial officer of any company that, while acting in that capacity (i) was the subject of a cease trade order or similar order or an order that denied the relevant company access to any exemption under securities legislation, in each case, that was in effect for a period of more than 30 consecutive days (an “order”), or (ii) was subject to an order that was issued after such Nominee ceased to be a director, chief executive officer or chief financial officer and which resulted from an event that occurred while such Nominee was acting in the capacity as director, chief executive officer or chief financial officer; (b) is, at the date of this release, or has been within the previous 10 years, a director or executive officer of any company that, while such Nominee was acting in that capacity, or within a year of the Nominee ceasing to act in that capacity, became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or was subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold its assets; or (c) within the previous 10 years has become bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or become subject to or instituted any proceedings, arrangement or compromise with creditors, or had a receiver, receiver manager or trustee appointed to hold the assets of such Nominee.
Based on information provided by each respective Nominee, none of the Nominees has been subject to: (a) any penalties or sanctions imposed by a court relating to securities legislation or by a securities regulatory authority or has entered into a settlement agreement with a securities regulatory authority; or (b) any other penalties or sanctions imposed by a court or regulatory body that would likely be considered important to a reasonable securityholder in deciding whether to vote for a Nominee.
Based on information provided by each respective Nominee, none of the Nominees or their respective associates or affiliates has: (a) any material interest, direct or indirect, in any transaction since the commencement of the Company’s most recently completed financial year or in any proposed transaction which has materially affected or would materially affect the Company or any of its subsidiaries; or (b) any material interest, direct or indirect, by way of beneficial ownership of securities or otherwise, in any matter to be acted on at the Meeting, other than the election of directors.
Information about the Concerned Shareholder
KAOS Capital Ltd. is an investment company controlled by Adam Arviv. The business address of KAOS Capital Ltd. is 118 Yorkville Avenue, Suite 604, Toronto, Ontario, M5R 1C2.
As of the date hereof, the Concerned Shareholder beneficially owns, or exercises control or direction, directly or indirectly, over, 6,765,967 Shares.
The Concerned Shareholder has not, within the preceding ten years of the date hereof, been a “dissident”, as such term is defined in Ontario Reg. 62 – General under the Business Corporations Act (Ontario).
To the Concerned Shareholder’s knowledge, there are no contracts, arrangements or understandings between the Concerned Shareholder or its associates and any other person, except the directors and officers of the Company acting solely in such capacity, pursuant to which any Nominee is to be elected.
Neither the Concerned Shareholder nor, to the Concerned Shareholder’s knowledge, any of its associates or affiliates, has (a) any material interest, direct or indirect, in any transaction since the commencement of the Company’s most recently completed financial year or in any proposed transaction which has materially affected or would materially affect the Company or any of its subsidiaries; or (b) any material interest, direct or indirect, by way of beneficial ownership of securities or otherwise, in any matter to be acted on at the Meeting, other than the election of directors.
Additional Information
The Concerned Shareholder is not soliciting proxies in connection with the Meeting at this time. The Concerned Shareholder has retained Morrow Sodali as its strategic shareholder communications and proxy advisor. Morrow Sodali’s responsibility will include providing strategic advice and advising the Concerned Shareholder with respect to the Meeting and proxy protocol. Morrow Sodali’s responsibilities will also include soliciting Shareholders should the Concerned Shareholder commence a formal solicitation of proxies. The Concerned Shareholder has also retained Bennett Jones LLP as legal counsel.
About Morrow Sodali
Morrow Sodali is a leading provider of strategic advice and shareholder services to corporate clients around the world. The firm provides corporate boards and executives with strategic advice and services relating to corporate governance, shareholder and bondholder communication and engagement, capital markets intelligence, proxy solicitation, shareholder activism and mergers and acquisitions.
From headquarters in New York and London, and offices and partners in major capital markets, Morrow Sodali serves more than 700 corporate clients in 40 countries, including many of the world’s largest multinational corporations. In addition to listed and private companies, its clients include mutual funds, ETFs, stock exchanges and membership associations.
For further information about Morrow Sodali, please visit www.morrowsodali.com.
Information in Support of Public Broadcast Solicitation
The information contained in this press release does not and is not meant to constitute a solicitation of a proxy within the meaning of applicable securities laws. Although the Concerned Shareholder has approached the Nominees for election to the Company’s board of directors at the Meeting of Shareholder, the record date for the Meeting has not yet occurred and Shareholder are not being asked at this time to execute a proxy in favour of any matter. In connection with the Meeting, the Concerned Shareholder may file a dissident information circular in due course in compliance with applicable securities laws.
Notwithstanding the foregoing, the Concerned Shareholder is voluntarily providing the disclosure required under section 9.2(4) of National Instrument 51‐102 – Continuous Disclosure Obligations in accordance with securities laws applicable to public broadcast solicitations.
The information contained herein, and any solicitation made by the Concerned Shareholder in advance of the Meeting, is or will be, as applicable, made by the Concerned Shareholder and not by or on behalf of the management of HEXO. All costs incurred for any solicitation will be borne by the Concerned Shareholder, provided that, subject to applicable law, the Concerned Shareholder may seek reimbursement from HEXO of the Concerned Shareholder’s out-of-pocket expenses, including proxy solicitation expenses and legal fees, incurred in connection with a successful reconstitution of the Company’s board of directors. The Concerned Shareholder is not soliciting proxies in connection with the Meeting at this time.
The Concerned Shareholder may engage the services of one or more agents and authorize other persons to assist in soliciting proxies on behalf of the Concerned Shareholder. Any proxies solicited by or on behalf of the Concerned Shareholder, including by any other agent retained by the Concerned Shareholder, may be solicited pursuant to a dissident information circular or by way of public broadcast, including through press releases, speeches or publications and by any other manner permitted under Canadian corporate and securities laws. Any such proxies may be revoked by instrument in writing executed by a shareholder or by his or her attorney authorized in writing or, if the shareholder is a body corporate, by an officer or attorney thereof duly authorized or by any other manner permitted by law.
The registered address of HEXO Corp. is located at 120 de la Rive Road, Gatineau, Quebec. A copy of this press release may be obtained on HEXO’s SEDAR profile at www.sedar.com.
